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ERC digitises equity release legal rules and highlights increased risk of fraud

  • 06/04/2020
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ERC digitises equity release legal rules and highlights increased risk of fraud
The Equity Release Council (ERC) has issued updated legal advice rules to enable sales of the product to continue proceeding in the coronavirus lockdown period.


The body said the measures increase the interactions between customers and legal advisers while advice is being given remotely and will maintain product safeguards and consumer wellbeing.

It requires solicitors to speak to all parties to the equity release contract at least four times – however there was a warning that fraud could increase in the current situation.

The guidance recommends solicitors should establish anyone who has any potential interest in whether the equity release proceeds or does not proceed and whether or not the client has spoken to immediate family members about their plan to take equity release.

If they have not, it should be established why not.

The guidance also emphasises that the witness used by the borrower must be an independent adult who is not benefitting from the equity release or the client’s estate.

They will also be subject to identity checks and due diligence.

“Solicitors should be aware that fraud, duress and coercion are all more likely in the current climate, especially given that so many people have lost their jobs in the wake of Covid-19,” the guidance states.

“As such, extra care must be taken to ensure that clients are taking equity release of their own free will and are not being pressured to do so by family members.

“Similarly, identification checks should be robust. Reasons for the loan should be cross-referenced with the client’s financial adviser.”

It continues telling solicitors: “Given that you will not be meeting the client in person, you must provide your legal advice in writing and then follow up with video/telephone calls (either recorded for playback or via detailed attendance note) with all parties to the equity release,” the guidance said.

“You need to determine whether a conflict of interests exists.”


Fulfill key duties

A statement from the council said that as a temporary measure, the update will enable independent legal advisers to continue fulfilling their key duties to consumers who are considering the option of equity release, by ensuring that:

  • The client’s identity has been fully established;
  • The client has mental capacity to enter into an equity release contract;
  • The client is not under duress or coercion to enter into the equity release contract;
  • Where there is more than one party, both agree to enter into the equity release contract.

The revision can only be used while the government has directed the public to stay at home to contain the spread of Covid-19.

The ERC said the new process was designed with input from across the sector including providers, funders, advisers and expert legal advisers with experience of equity release transactions across the UK.

The council’s standards board, with independent consumer and regulatory experts, also supported this process.

Once restrictions on movement have been lifted, the aim is to return to the full face-to-face legal process with immediate effect.

Any cases where sufficient checks cannot be carried out should be delayed until government restrictions have lifted, the ERC added.


Industry support

Mortgage Solutions asked if concerns about the risk of increasing fraud in the sector meant the rules should not have been changed.

Equity Release Council chairman David Burrowes (pictured) said: “These are unprecedented times and the council is pleased to have secured industry support for a solution that ensures consumers can continue to access quality, independent legal advice when considering whether to release equity from their homes.

“The new measures have been designed with input from expert solicitors who provide legal advice on equity release transactions across the UK. It is designed to support large and small solicitors to advise safely on equity release at this time.”

He noted that the temporary solution was the result of collaboration and sharing of legal expertise among council members to ensure consumers’ interests remain protected.

The council will keep this modification under close review until it ceases when the government ends its ‘stay at home’ requirement.

Burrowes continued: “These measures to maintain access to equity release legal advice for older consumers will continue to ensure it is chosen for the right reasons, as part of a carefully considered process that looks at both short- and long-term needs.”



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